It's time for Thailand to restructure its economy, even though the 19% US tax rate is not unexpected.

"The 2568 Thai economic growth forecast of 2.2% already includes the impact of the 19% US tariff. Before the US announced its tariffs on Thailand, we anticipated a high chance that Thailand would receive this rate, based on regional estimates of no more than 20%."

Currently, the Thai economy is facing many challenges from both domestic and international levels. One of the important agencies in designing and recommending policies for the care and management of the macroeconomics is Fiscal Policy Office (FPO)

โดย Mr. Pornchai Teerawet, Director of the Fiscal Policy Office (FPO) Give a special interview bank finance Regarding the Thai economic outlook in 2568, supporting factors and risk factors to watch out for, including policies that Thailand should implement in order to overcome various challenges.

expect GDP in 68 grew by 2.2%.
Keep an eye on Thai exports in the second half of the year.

Mr. Pornchai stated that the Ministry of Finance expects the Thai economy to expand by 2568% per year in 2.2, within a projected range of 1.7% to 2.7%. This growth is primarily driven by better-than-expected industrial production and exports. Export value in US dollar terms is expected to grow by 5.5% per year, or within a projected range of 5.0% to 6.0%, as trading partners accelerate imports more than expected in the first half of the year.

“Exports in the second half of the year may slow due to the impact of US import tariffs, but thanks to negotiations that have brought tariff rates closer to those of competitors at 19%, Thai products can maintain their overall competitiveness.”

While public investment is another key driving force, continued budget disbursements and the 157,000 billion baht economic stimulus plan will support infrastructure investment and stimulate the economy, private consumption continues to expand, with domestic purchasing power remaining strong, as reflected in the nine consecutive quarters of growth in value-added tax collected domestically.

This is coupled with the high number of investment promotion applications from the Board of Investment (BOI). In the first half of 2568, applications for investment promotion totaled over 1 trillion baht from 1,880 projects, supporting the recovery of private investment.

 In addition, to ease monetary policy through a reduction in the policy interest rate, the Monetary Policy Committee (MPC) at its meeting on August 13, 2568, unanimously voted to reduce the policy interest rate by 0.25 percentage points per year, from 1.75% to 1.50% per year, to ensure financial conditions are conducive to business adjustments, alleviate the debt burden of vulnerable groups, and support economic growth.

"This latest estimate of the Thai economy for 2568, at 2.2%, is an upward revision from the previous estimate in April 2568, which projected 2.1% growth. Key drivers of this growth are government budget disbursements, private consumption, recovering investment, and several months of accelerating exports. This upward revision is consistent with other agencies, such as the IMF."

However, there are still risk factors that need to be monitored, including the impact of the global economy and trade barriers. A key risk factor is the US import tariffs, which could impact Thai exports in the second half of the year.

In addition, it is important to monitor the inflow of goods from other countries affected by US tariff policies, geopolitical conflicts that increase uncertainty, which will create volatility in the economy, domestic structural constraints, and household debt levels, which may affect purchasing power and credit expansion.

US Tax 19% Not unexpected
It's time to restructure the economy.

Mr. Pornchai stated that on July 31, 2568, President Donald Trump signed the Presidential Order "Further Modifying the Reciprocal Tariff Rates," which retaliated against import tariffs to address the persistent trade deficit and maintain US economic stability. The import tariff rate from Thailand to the US is 19% and will be effective from August 7, 2568. The announcement of the 19% import tariff rate from Thailand is in line with the Office of the National Economic and Social Development Board (NESDB), which is expected to result in an average growth rate of 2568% for the Thai economy in 2.2.

"The 2568 Thai economic growth forecast of 2.2% already includes the impact of the 19% US tariff. Before the US announced its tariffs on Thailand, we anticipated a high probability of Thailand receiving this rate, with regional countries estimating no more than 20%."

However, the next step to monitor is the tariff rate that the US will impose on goods that are transshipped to avoid tariffs, for which the US will impose an additional 40% ad valorem tariff and may be subject to fines or other legal penalties.

Thailand may face increased risk from transshipment of counterfeit goods from China due to a 30% tariff imposed on China. This will incentivize Chinese businesses to use counterfeit goods through Thailand to avoid tariffs. Products at risk of counterfeit goods include electronics and computer parts. In addition to counterfeit goods, Thailand must also prioritize the influx of low-cost goods from abroad.

"Currently, the Ministry of Finance, the Ministry of Commerce, and relevant agencies are jointly studying approaches to managing the risk of counterfeit goods and low-cost goods from abroad flooding into Thailand. The United States is also in the process of establishing clear criteria for this matter. However, the Ministry of Finance is fully prepared to address this issue, specifically through the Customs Department's tax mechanism."

Mr. Pornchai further stated that to cope with US tariffs, particularly the issue of counterfeit goods and the risk of foreign goods inflowing into the country, Thailand must restructure its economy. The Economic Stimulus Policy Committee has approved a budget of 157,000 billion baht to support restructuring and strengthen the economy, focusing on 1. water and transportation infrastructure; 2. tourism; 3. reducing the impact on exports/increasing productivity; and 4. community economies and other sectors. This is expected to boost GDP by approximately 0.4%.

In addition, the budget has been allocated to the National Competitiveness Enhancement Fund for Targeted Industries under the Board of Investment and the Student Loan Fund to enhance the competitiveness of Thai entrepreneurs to cope with US retaliatory tariffs, along with developing human capital among students and laying the foundation for the country's long-term growth.

Most recently, 26,000 billion baht from this economic stimulus budget has been transferred to the central budget, the Emergency and Necessary Reserve Fund, to maximize the effectiveness of the economic stimulus budget, enabling rapid, flexible, and efficient problem resolution, in line with the national situation.

"The key to addressing the impact of US tariffs is Thailand's economic restructuring, which will take time. However, there are projects the government can expedite immediately: infrastructure development, particularly water resources, which are key production factors for the agricultural and industrial sectors, which are crucial to the country."

While spending this stimulus package, the Economic Stimulus Policy Committee has also adjusted its economic stimulus strategy. Instead of injecting funds to support consumer consumption, the program will now directly fund spending, such as through the state welfare card program for the elderly and disabled, to encourage subsequent investment. The program will now be injecting funds to stimulate investment, generating employment, generating income, and leading to continued consumption and investment.

“According to a survey by the National Statistical Office, direct economic stimulus payments will inject approximately 75% of the money into the real economy. The remainder will be used by people to save or pay off debt. Therefore, we are shifting our focus to stimulating investment to create employment and provide people with spending money. This will take some time to see results.”

However, restructuring the economy requires cooperation from multiple sectors, including the Ministry of Finance, Ministry of Commerce, and Ministry of Labor, which must take the lead in human capital development. The Ministry of Education, meanwhile, must develop education, particularly at the vocational level. Given that the majority of the manufacturing workforce comes from vocational education graduates, education in these areas must be strengthened to effectively integrate the workforce into the system.

"I believe the most important thing Thailand needs to urgently develop right now is the overall workforce. We don't want to see a workforce with insufficient skills to support new industries. This must be done in conjunction with educational development."

Following the announcement of the 19% US tariff, Thailand remains competitive in the electronic components sector, particularly in hard disk drives[1] and automotive tire products, which are among Thailand's strengths. Although the US wants to repatriate its production base, it will take considerable time. Meanwhile, skilled labor is not limited to the US; it is also distributed in various developing countries, including Thailand, where labor costs are not high.

“Thailand has strengths in the electronic components industry, particularly in hard disk drives and automotive rubber products. The United States has recently imported over 80 billion tonnes of these products from Thailand.% and 16% respectively. Therefore, as long as these products remain in demand, Thailand will remain competitive in manufacturing. However, we cannot afford to be complacent; we must urgently restructure our economy.”

Aiming to open the way for banks to establish JV AMC
Moving forward to solve household debt problems

Mr. Pornchai stated that the household debt situation in Thailand's system is reflected in the household debt-to-GDP ratio. As of the first quarter of 1, it stood at 2568% of GDP, valued at 87.4 trillion baht, a decrease from 16.4% of GDP in the previous quarter. Considering the structure of household debt in Thailand's system, the majority of household debt in Thailand is productive loans, accounting for approximately 88.4% of total household debt. These loans are borrowed to accumulate wealth through asset purchases and business operations.

As for the non-performing loan (NPL) ratio of household debt as of Q1 2568, it was 3.41% of total loans, an increase from Q4 2567, which was 3.26% of total loans, while special mention loans (SM) of household debt as of Q1 2568 was 7.81% of total loans.

Currently, the government, through the Ministry of Finance, in collaboration with the Bank of Thailand (BOT) and various financial institutions, has implemented the "You Fight, We Help" project, which is currently in its second phase, extending the registration period to September 2, 30, to allow more time for debtors who were unable to participate in the first round.

The Ministry of Finance is currently in discussions with the Bank of Thailand (BOT) and the Thai Bankers' Association on ways to assist debtors across the system through asset management companies (AMCs). The Ministry will amend the regulations to allow financial institutions to establish joint venture asset management companies (JV AMCs) to manage their own non-performing loans.

There is also the idea of ​​adjusting the credit bureau's code for debtors who have undergone debt restructuring, possibly establishing a special code for this group of debtors. The primary goal is to alleviate pressure from non-performing loans (NPLs) held by financial institutions, along with expediting debt restructuring for debtors with bad debts. This will ease their burden, help them escape this situation quickly, and increase their access to future funding sources.

The Ministry of Finance has also developed the Ari Score, a new credit scoring system using alternative data from citizens, to help low-income earners and SMEs without formal credit histories more easily access formal loans.

"The Aree Score will be another credit scoring system that reflects people's financial discipline, which state-owned specialized financial institutions can use in their loan approval process. The Ministry of Finance, the Bank of Thailand, and the Thai Bankers' Association are currently discussing this issue."

 The Ministry of Finance has a plan to collect additional citizen data from various agencies. Therefore, it has proposed the creation of an Ari Score credit score model under the Soft Loan Ari Score Sandbox project to the Cabinet for consideration and approval of the implementation guidelines.

[1] United States International Trade Commission (USITC) DataWeb database system.

Follow and read other columns in the September 2568 Bank Finance Journal, Issue 521, in digital format: https://goo.gl/U6OnIi

Including channels for ordering banking and finance journals Both current and past editions Complete in one place: https://ma.co.th/product-category/mb-shop/